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InnerWorkings Announces Fourth Quarter and Full-Year 2016 Results

CHICAGO--(BUSINESS WIRE)--

InnerWorkings, Inc. (INWK), the leading global marketing execution firm, today announced financial results for the three months and year ended December 31, 2016. For all non-GAAP references below, please refer to the non-GAAP reconciliation tables at the end of this release for more information.

“2016 was another record year of profitable growth and new client wins,” said Eric D. Belcher, Chief Executive Officer of InnerWorkings. “The success of our strategy in developing global scale across a full suite of marketing execution solutions has yielded improving margins and we expect this trend to continue in 2017.”

Fourth Quarter 2016 Highlights

  • Gross revenue was $270.4 million in the fourth quarter of 2016, slightly above $270.3 million in the fourth quarter of 2015.
  • Gross profit (net revenue) was $68.7 million, or 25.4% of gross revenue in the fourth quarter of 2016, a 10% increase compared to $62.5 million, or 23.1% of gross revenue, in the same period of last year.
  • Net income for the fourth quarter of 2016 was $5.0 million, or $0.09 per diluted share, which included a $0.8 million reduction in after-tax depreciation expense due to an estimate change (see below).
  • Non-GAAP diluted earnings per share for the fourth quarter of 2016 were $0.12, a 100% increase compared to $0.06 in the fourth quarter of 2015.
  • Non-GAAP adjusted EBITDA was $15.7 million in the fourth quarter of 2016, reflecting 20% growth as compared to $13.1 million in the fourth quarter of 2015.

Full-Year 2016 Highlights

  • Gross revenue in 2016 was $1,090.7 million, an increase of 6% compared with $1,029.4 million in 2015.
  • 2016 gross profit (net revenue) was $263.5 million, or 24.2% of gross revenue, an increase of 10% compared to $240.2 million, or 23.3% of gross revenue, in 2015.
  • Net income in 2016 was $4.4 million, or $0.08 per diluted share, and was heavily impacted by the accounting adjustment related to the increase in the value of contingent consideration for prior acquisitions.
  • 2016 non-GAAP diluted earnings per share were $0.38, an increase of 58% compared to $0.24 in 2015.
  • 2016 non-GAAP adjusted EBITDA was a record $59.2 million, a 16% increase compared to $50.8 million in 2015.
  • InnerWorkings signed new enterprise contracts during 2016 totaling $140 million of annual revenue at full run-rate, with nearly half stemming from expanded relationships with active clients.

“We ended the year on a very strong note, exceeding our revenue and non-GAAP diluted earnings per share guidance for 2016, even after raising our expectations in November,” said Jeffrey P. Pritchett, Chief Financial Officer of InnerWorkings. “We enter 2017 well positioned to execute against our plan, with a robust backlog of new contractual revenue and a very strong balance sheet.”

Outlook

The Company expects 2017 annual revenue to range between $1.155 billion and $1.185 billion, representing growth of 6% to 9% compared to 2016. Non-GAAP adjusted EBITDA is expected to be between $65.0 million and $68.0 million in 2017, representing growth of 10% to 15% compared to 2016. The Company forecasts 2017 non-GAAP diluted earnings per share to be $0.44 to $0.47, representing growth of 16% to 24% compared to 2016.

Conference Call

Eric D. Belcher, Chief Executive Officer, and Jeffrey P. Pritchett, Chief Financial Officer, will host a conference call to discuss the results today at 4:30 p.m. Central time (5:30 p.m. Eastern time).

The phone number to access the conference call is (877) 771-7024. A live audio webcast of the call will be available through InnerWorkings’ website at http://investor.inwk.com/events.cfm. A replay of the webcast will be available later today at the same location.

Depreciation Expense - Change in Accounting Estimate

In accordance with the Company’s fixed asset policy, the Company reviews the estimated useful lives of all the fixed assets, including internally developed software at least once a year or if there are indicators that a useful life has changed. The review during the fourth quarter of 2016 indicated that the estimated useful lives of certain proprietary internally developed software were longer than the current estimated useful lives. As a result, effective October 1, 2016, the Company changed the estimated useful lives of a portion of its internally developed software. The estimated useful lives of such assets were increased by an average of approximately 4.5 years. These assets had a net book value of $20.8 million as of October 1, 2016. The effect of this change in estimate resulted in a reduction of depreciation expense by $1.4 million, increase in net income by $0.8 million, and increase in basic and diluted earnings per share by $0.02 for the quarter and year ended December 31, 2016.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as “non-GAAP financial measures” by the Securities and Exchange Commission: non-GAAP adjusted EBITDA and non-GAAP diluted earnings per share. We believe these measures provide useful information to investors because they provide information about the estimated financial performance of the Company's ongoing business. These measures are used by management in its financial and operational decision-making and evaluation of overall operating performance. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles. For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, please see the reconciliation of non-GAAP adjusted EBITDA and non-GAAP diluted earnings per share included in this release.

The Company has not quantitatively reconciled its guidance for non-GAAP adjusted EBITDA or non-GAAP diluted earnings per share to their most comparable GAAP measure because the Company does not provide specific guidance for the various reconciling items as certain items that impact these measures have not occurred, are out of the Company’s control, or cannot be reasonably predicted, including potential changes in contingent consideration value. Accordingly, a reconciliation to the nearest GAAP financial metric is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the Company’s financial results.

Forward-Looking Statements

This release contains statements relating to future results. These statements are forward-looking statements under the federal securities laws. We can give no assurance that any future results discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this release. For a discussion of important factors that could affect our actual results, please refer to our SEC filings, including the “Risk Factors” section of our most recently filed Form 10-K.

About InnerWorkings

InnerWorkings, Inc. (INWK) is the leading global marketing execution firm serving Fortune 1000 brands across a wide range of industries. As a comprehensive outsourced enterprise solution, the Company leverages proprietary technology, an extensive supplier network and deep domain expertise to streamline the production of branded materials and retail experiences across geographies and formats. InnerWorkings is based in Chicago, IL and employs more than 1,500 individuals to support global clients in the execution of multi-faceted brand campaigns in every major market around the world. Among the many industries InnerWorkings serves are: retail, financial services, hospitality, consumer packaged goods, not-for-profits, healthcare, food & beverage, broadcasting & cable, and transportation. For more information visit: www.inwk.com.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

 
 

Three Months Ended

December 31,

 

Year Ended

December 31,

2016   2015   2016   2015
(unaudited) (unaudited)        
Revenue $ 270,418 $ 270,311 $ 1,090,704 $ 1,029,353
Cost of goods sold 201,691   207,772   827,156   789,159  
Gross profit 68,727 62,539 263,548 240,194
Operating expenses:
Selling, general and administrative expenses 54,456 52,456 209,967 197,291
Depreciation and amortization 3,534 4,629 17,916 17,472
Change in fair value of contingent consideration 442 (1,961 ) 10,417 (270 )
Goodwill impairment charge 37,539 37,539
Intangible asset impairment charges 70 202 70 202
Restructuring and other charges 1,181   1,053   5,615   1,053  
Income (loss) from operations 9,044 (31,379 ) 19,563 (13,093 )
Other income (expense):
Interest income 23 14 86 69
Interest expense (918 ) (1,230 ) (4,171 ) (4,612 )
Other, net (169 ) (2,143 ) (153 ) (3,135 )
Total other expense (1,064 ) (3,359 ) (4,238 ) (7,678 )
Income (loss) before income taxes 7,980 (34,738 ) 15,325 (20,771 )
Income tax expense 2,933   6,192   10,955   12,292  
Net income (loss) $ 5,047   $ (40,930 ) $ 4,370   $ (33,063 )
 
Basic earnings (loss) per share $ 0.09 $ (0.77 ) $ 0.08 $ (0.63 )
Diluted earnings (loss) per share $ 0.09 $ (0.77 ) $ 0.08 $ (0.63 )
 
Weighted-average shares outstanding basic 54,025 53,093 53,607 52,791
Weighted-average shares outstanding diluted 55,019 53,093 54,460 52,791

Condensed Consolidated Balance Sheets

 
(in thousands)  

December 31,

2016

 

December 31,

2015

 
Assets
Current assets:
Cash and cash equivalents $ 30,924 $ 30,755
Accounts receivable, net 182,874 188,819
Unbilled revenue 32,723 30,758
Inventories 31,638 33,327
Prepaid expenses 18,772 14,353
Other current assets 24,769   31,825  
Total current assets 321,700 329,837
Property and equipment, net 32,656 32,681
Intangibles and other assets:
Goodwill 202,700 206,257
Intangible assets, net 31,538 37,715
Deferred income taxes 1,031 586
Other non-current assets 1,374   1,391  
Total intangibles and other assets 236,643   245,949  
Total assets $ 590,999   $ 608,467  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 121,289 170,244
Current portion of contingent consideration 19,283 11,387
Due to seller 402
Accrued expenses 30,067 31,363
Other current liabilities 35,049   17,866  
Total current liabilities 205,688 231,262
Revolving credit facility 107,468 99,258
Deferred income taxes 11,291 10,526
Contingent consideration, net of current portion 10,775
Other non-current liabilities 1,926   2,510  
Total liabilities 326,373 354,331
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 224,480 213,566
Treasury stock at cost (49,458 ) (52,207 )
Accumulated other comprehensive loss (20,799 ) (13,993 )
Retained earnings 110,397   106,764  
Total stockholders' equity 264,626   254,136  
Total liabilities and stockholders' equity $ 590,999   $ 608,467  

Condensed Consolidated Statement of Cash Flows

 
(in thousands)  

Three Months Ended

December 31,

 

Year Ended

December 31,

2016   2015 2016   2015
(unaudited) (unaudited)
Cash flows from operating activities
Net income (loss) $ 5,047 $ (40,930 ) $ 4,370 $ (33,063 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 3,534 4,629 17,916 17,472
Stock-based compensation expense 1,474 1,019 5,572 5,873
Deferred income taxes 3,407 6,179 4,084 6,947
Change in fair value of contingent consideration liability 442 (1,961 ) 10,417 (270 )
Goodwill impairment charge 37,539 37,539
Intangible asset impairment charges 70 202 70 202
Bad debt provision 738 734 2,171 1,949
Secured asset reserve 2,023 2,023
Venezuela remeasurement charges 890 890
Excess tax benefit from exercise of stock awards (4,030 ) (4,030 )
Other operating activities 52 52 210 210
Change in assets, net of acquisitions:
Accounts receivable and unbilled revenue 14,607 7,198 1,809 (10,361 )
Inventories 13,739 4,928 1,690 (8,188 )
Prepaid expenses and other assets (1,131 ) 7,298 2,442 (6,138 )
Change in liabilities, net of acquisitions:
Accounts payable (8,691 ) 21,728 (48,955 ) 26,199
Accrued expenses and other liabilities 4,898   (871 ) 12,759   2,118  
Net cash provided by operating activities 34,156 50,657 10,525 43,402
 
Cash flows from investing activities
Purchases of property and equipment (2,817 ) (2,908 ) (13,319 ) (15,034 )
Net cash used in investing activities (2,817 ) (2,908 ) (13,319 ) (15,034 )
 
Cash flows from financing activities
Net short-term secured borrowings (repayments) 1,225 (248 ) 405 (799 )
Payments of contingent consideration (366 ) (11,374 ) (8,010 )
Net borrowing (repayments) of revolving credit facility (25,983 ) (28,770 ) 8,739 (5,281 )
Proceeds from exercise of stock options 634 544 2,636 1,195
Repurchases of common stock (4,897 )
Excess tax benefit from exercise of stock awards 4,030 4,030
Other financing activities (186 ) (169 ) (866 ) (594 )
Net cash provided by (used) in financing activities (20,646 ) (28,643 ) 3,570 (18,386 )
       
Effect of exchange rate changes on cash and cash equivalents (556 ) (989 ) (607 ) (1,805 )
Increase in cash and cash equivalents 10,137 18,117 169 8,177
Cash and cash equivalents, beginning of period 20,787   12,638   30,755   22,578  
Cash and cash equivalents, end of period $ 30,924   $ 30,755   $ 30,924   $ 30,755  

Reconciliation of Non-GAAP Adjusted EBITDA and Non-GAAP Diluted Earnings Per Share

(Unaudited)

 
(in thousands)  

Three Months Ended

December 31,

 

Year Ended

December 31,

2016   2015 2016   2015
       
Net income (loss) $ 5,047 $ (40,930 ) $ 4,370 $ (33,063 )
Income tax expense 2,933 6,192 10,955 12,292
Total other expense 1,064 3,359 4,238 7,678
Depreciation and amortization 3,534 4,629 17,916 17,472
Stock-based compensation expense 1,474 1,019 5,572 5,873
Change in fair value of contingent consideration 442 (1,961 ) 10,417 (270 )
Goodwill impairment charge 37,539 37,539
Intangible asset impairment charges 70 202 70 202
Restructuring and other charges 1,181 1,053 5,615 1,053
Secured asset reserve   2,023     2,023  
Non-GAAP Adjusted EBITDA $ 15,745   $ 13,125   $ 59,153   $ 50,799  
 
 
(in thousands, except per share amounts)

Three Months Ended

December 31,

Year Ended

December 31,

2016 2015 2016 2015
       
Net income (loss) $ 5,047 $ (40,930 ) $ 4,370 $ (33,063 )
Change in fair value of contingent consideration, net of tax 442 (1,962 ) 10,417 (282 )
Goodwill impairment charge 37,539 37,539
Intangible asset impairment charges, net of tax 56 153 56 153
Restructuring and other charges, net of tax 909 873 4,873 873
Venezuela remeasurement charges 1,521 1,521
Secured asset reserve, net of tax(1) 1,239 1,239
Realignment-related income tax charges $ 282   $ 4,685   $ 1,179   $ 4,685  
Adjusted net income $ 6,736 $ 3,118 $ 20,895 $ 12,665
Weighted average shares outstanding, diluted 55,019   53,093   54,460   52,791  
Non-GAAP Diluted Earnings Per Share $ 0.12   $ 0.06   $ 0.38   $ 0.24  

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